Mistakes to Avoid During the Mortgage Approval Process
The first step towards buying a home often involves saving for a downpayment and achieving a pre-approval letter from a mortgage provider.
A pre-approval letter indicates you’re a serious buyer committed to buying a home, with the financial means to do so. The letter is typically issued after a thorough review of your financial history (including your credit report and score) by a mortgage lender.
It is important to understand that mortgage pre-approval does not guarantee loan approval. It’s simply a lender’s way of saying they are likely to approve you for a loan based on your financial standing at the time of pre-approval. You must find a home that the lender is willing to accept as security for the loan.
Therefore, it’s important to be extra vigilant with your finances, from the time of pre-approval all the way through closing on your new home, in order to remain in good standing with your preferred mortgage lender.
Here are some recommendations for keeping your financial situation in tip-top shape during the homebuying process:
Don’t Apply for New Credit
Your credit may be pulled at any time up to the time of closing; therefore, it’s important that a buyer refrains from applying for any new types of credit or loans, as this may negatively impact your credit score. Accumulating additional debt during the homebuying process will increase your debt-to-income ratio and could potentially cause your mortgage loan to be denied.
Don’t Default on Credit Card & Loan Payments
Payment history is one of the most important factors in your credit score! It is important to make all credit card and loan payments on time and for the full amount due. Missing payments or making partial payments will negatively impact your credit.
Avoid Large Purchases
Do not make any large purchases prior to closing on your mortgage. While it may be tempting to prepare for homeownership by purchasing new furniture or appliances, it is not a good idea. Making large purchases in cash will negatively impact your savings and using credit cards will impact your debt-to-income ratio. According to NerdWallet, it’s important to keep your credit utilization under 30% to maintain a strong credit score. Neither your savings nor debt-to-income ratio should take a hit while you’re waiting to close on the purchase of a home.
Avoid Making Large Deposits to Your Bank Account
An underwriter may interpret large deposits to your bank account as newly borrowed money, meaning your debt-to-income ratio has increased. A loan officer will most likely question any deposit over the amount of $1,000 (not including transfers between accounts or payroll deposits), so be prepared to show a paper trail for any large deposits for at least the past 60 days when you submit your financial records to the mortgage lender.
As always, it’s important to find a local mortgage lender to help you through the homebuying process from start to finish. At GoPrime, we’re prepared to help you every step of the way.